CLA-2 RR:TC:SM 559611 DEC
Mr. Ken Crawford
International Herbs, Ltd.
3689 184th Street
Surrey, British Columbia
Canada V4P 1M5
RE: Herbs; 9801.00.10, HTSUS; Border Brokerage Company, Inc. v.
United States,
C.D. 4052, 65 Cust. Ct. 50, 314 F.Supp. 788, 792 (1970),
appeal dismissed, 58
CCPA 165 (1970); HRL 555148; HRL 555685; Wilbur G. Hallauer
v. United
States, 40 CCPA 197, C.A.D. 518 (1953); HRL 556685; HRL
554654; HRL
555462
Dear Mr. Crawford:
This is in response to your two letters dated September 6,
1995, and October 23, 1995, that our office received on December
20, 1995, from our New York office regarding the applicability of
heading 9801, Harmonized Tariff Schedule of the United States
(HTSUS), to U.S.-grown herbs that are processed and packaged in
Canada. In addition, this ruling letter will also address the
applicability of heading 9802, HTSUS.
FACTS:
You state that your company, International Herbs Ltd., is a
grower, importer, packager, and shipper of fresh cut herbs,
gourmet baby lettuces, gourmet baby vegetables, and edible
flowers for culinary purposes. Currently, you import herbs grown
in the United States into Canada. Once the herbs are in Canada,
you clean, trim the bottom of the stems to remove excess field
soil, package, and label these herbs into various sized
containers for the retail and food service industries. In a
telephone conversation on May 1, 1996, with a member of my staff,
you indicated that the
packages of herbs that you intend to import vary in size from one
ounce to one pound bags. All of the herbs contemplated in your
ruling request are to be imported into the United States as fresh
herbs. You stated that you do not grind, chop, or slice the
herbs, but only trim the stems of the herbs so that they are of
uniform size and can be easily packaged. You ask whether the
herbs to be imported from Canada after they are processed are
eligible for duty-free treatment pursuant to subheading
9801.00.10, HTSUS.
ISSUE:
Will herbs of U.S.-origin that are cleaned, trimmed at the
bottom to remove soil, trimmed to size, and packed in containers
for the retail or food service market be eligible for duty-free
treatment under subheading 9801.00.10, HTSUS, when returned to
the U.S. or will they be eligible for partial relief from duty
under subheading 9802.00.50, HTSUS?
LAW AND ANALYSIS:
HTSUS subheading 9801.00.10 provides for the duty-free entry
of products of the U.S. that are returned after having been
exported, without having been advanced in value or improved in
condition by any process of manufacture or other means while
abroad, provided there has been compliance with the documentary
requirements of section 10.1, Customs Regulations (19 CFR 10.1).
In Border Brokerage Company, Inc. v. United States, C.D.
4052, 65 Cust. Ct. 50, 314 F.Supp. 788, 792 (1970), appeal
dismissed, 58 CCPA 165 (1970), tomatoes repacked in 18-pound
cartons were imported from Canada. The tomatoes had been
exported in 40- pound cartons from the U.S. to Canada where they
were unloaded, unpacked, sorted, graded by color and size,
repacked in smaller cartons and sold to customers in the U.S. at
prices higher than those paid by the exporter. There was no
intermixing of sizes in the repacking, but about 4% of the
tomatoes were culled out as spoiled or broken down. The court
stated that:
...the test to be applied in item 800.00 [Tariff
Schedules of the
United States (TSUS), the precursor tariff provision to
HTSUS
subheading 9801.00.10] cases is whether the merchandise
of
American origin has itself (apart from its container)
been the object
of advancement in value or improvement in condition
while abroad.
The court found that nothing more was done to the tomatoes
themselves in Canada than that which is entailed in their
physical transfer, with selectivity, from one size carton to a
carton of a smaller size. In addition, the court found that the
mere sorting of the tomatoes as found in their natural condition
did not constitute an advancement in value or an improvement in
their condition.
Customs has consistently held that the packaging abroad of
U.S.-made products will not preclude classification under
subheading 9801.00.10, HTSUS, when there is no improvement in
condition or advancement in value of the products themselves,
apart from their containers. For example, in Headquarters Ruling
Letter (HRL) 555685,
dated August 15, 1990, we allowed infant formulas that were
exported in a finished condition to Canada and packaged into
consumer size cans without being subjected to
any other operations prior to their return, to be eligible for
classification under 9801.00.10, HTSUS, when they were imported
into the United States. In HRL 555148, dated March 15, 1990, we
found that soybean and corn oil that was shipped to Canada and
packaged into consumer size bottles and then labeled did not
undergo any further processing, such as blending or mixing, in
Canada. Accordingly, Customs allowed the oils to be classified
pursuant to subheading 9801.00.10, HTSUS, when the oils were
imported into the United States.
In this case, however, the herbs that will be sent abroad
will undergo various additional processes before they are
returned to the United States. You describe the processing as
involving cleaning, trimming of the stems, packaging, and
labeling of the herbs in various retail containers. We find that
this case is substantially different from the precedents that are
cited above. In fact, the court in Border Brokerage, in support
of its finding that the subject tomatoes were not advanced in
value or improved in condition abroad, indicated that the
tomatoes were not cleaned, wiped, or individually wrapped while
abroad. The absence of these processes weighed in favor of the
court's conclusion that the mere repackaging of the tomatoes did
not disqualify the duty-free treatment accorded to American goods
returned. In this case, the combination of cleaning and trimming
serve to advance in value and improve the condition of the herbs
that are to be exported to Canada. Accordingly, the herbs are
not entitled to classification under subheading 9801.00.10,
HTSUS.
Alternatively, articles returned to the United States after
having been exported to be advanced in value or improved in
condition by repairs or alterations may qualify for the partial
duty exemption under subheading 9802.00.50, HTSUS, provided the
foreign operation does not destroy the identity of the exported
articles or create new or commercially different articles through
a process of manufacture. See, A.F. Burstrom
v. United States, 44 CCPA 27, C.A.D. 631 (1956), aff'd, C.D.
1752, 36 Cust. Ct. 46 (1956); Guardian Industries Corp. v. United
States, 3 CIT 9 (1982). Accordingly, entitlement to this tariff
treatment is precluded where the exported articles are incomplete
for their intended purpose prior to the foreign processing and
the foreign processing operation is a necessary step in the
preparation or manufacture of finished articles. Dolliff &
Company, Inc. v. United States, 455 F. Supp. 618 (CIT 1978),
aff'd, 559 F.2d 1015 (Fed. Cir. 1979). Articles entitled to this
partial duty exemption are dutiable only upon the cost or value
of the foreign repairs or alterations when returned to the United
States, provided the documentary requirements of section 181.64,
Customs Regulations (19 CFR 181.64), are satisfied.
In HRL 556685, dated June 26, 1992, Customs concluded that
the removal of stems from jalapeno peppers would not preclude the
peppers from receiving the benefits of subheading 9802.00.50,
HTSUS, since stemmed peppers are not commercially different
articles from unstemmed peppers. In addition, Customs has
ruled that certain cleaning operations constitute alterations.
See HRL 555180, dated December 26, 1989 (carrots exported to
Mexico for washing, cooling, sorting by size, grading for
quality, and packaging for retail sale were entitled to the
partial duty exemption provided for under subheading 9802.00.50,
HTSUS). In addition, the Court of Customs and Patent Appeals
concluded that certain operations performed in Canada to U.S.-origin apples, including cleaning, grading, wrapping, and
packing, were deemed to be alterations. Wilbur G. Hallauer v.
United States, 40 CCPA 197, C.A.D. 518 (1953).
You describe the operations to be performed as involving the
trimming of the herbs' stems to remove excess soil and "conform
to eye appeal." The fresh herbs will be trimmed in order to make
the herbs more uniform in size for ease of packaging in fresh
bunches. We note that in a case involving slicing of fruit
abroad, we held that the slicing of peaches exceeded the scope of
the term "alteration" under item 806.20, TSUS (the precursor to
subheading 9802.00.50, HTSUS). See HRL 554654, dated July 28,
1987. In HRL 554654, we determined that the slicing of exported
whole peaches, including removal of the pits and skins, not only
destroyed the identity of the exported peaches, but resulted in
new articles of commerce, more suitable and better adapted not
only for ice cream but other industries as well. In addition, we
held in HRL 555462, dated September 11, 1989, that dicing and
individually quick-freezing apples abroad did not constitute an
acceptable alteration for purposes of subheading 9802.00.50,
HTSUS. In that case, we stated that the dicing of apples
resulted in new and different commercial articles having uses
different from those of whole apples. In contrast, the fresh
herbs that will be trimmed to make their sizes more uniform for
shipping and eye appeal will not result in a new and different
product. Consequently, since the herbs are not chopped, ground,
or sliced, they will be eligible for a partial duty exemption
under subheading 9802.00.50, HTSUS.
HOLDING:
On the basis of the information submitted, we find that
herbs that will be subject to cleaning, trimming the stems to
remove excess field soil and to make them more uniform in size,
packaging, and labeling of the herbs into various sized
containers for the retail and food service industries in Canada
are precluded from classification under subheading 9801.00.10,
HTSUS. However, the Canadian processing constitutes an
"alteration" entitling the imported herbs to a partial duty
exemption within the meaning of subheading 9802.00.50, HTSUS,
assuming compliance with the documentary requirements of 19 CFR
181.64 (copy enclosed).
A copy of this ruling letter should be attached to the entry
documents filed at the time this merchandise is entered. If the
documents have been filed without a copy, this ruling should be
brought to the attention of the Customs officer handling the
transaction.
Sincerely,
John Durant, Director
Tariff Classification Appeals
Division
Enclosure